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ITO, 9 (2) (2) , Mumbai Versus M/s Kanakiya Gruhnirman Pvt. Ltd.

2015 (12) TMI 397 - ITAT MUMBAI

Taxing the rental income under the head income from house property as against income from other sources - Allowance of interest expenditure - Held that:- In this case IOD was issued in relation to the plan that was put up on 25. 8. 2006 i. e. after entering into the development agreement. The fact is confirmed from the IOD dated 10. 1. 2007 and CC dt. 24. 4. 2007. It is found that amended plan was put up on 21. 2. 2007 and was approved on 8. 3. 2007, that construction work started in earlier ass .....

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ere not provided to the assessee though the same were relied upon by the AO, that as on 12. 4. 2008 two floors of the school building were complete. It is also found that in the case of BKF the AO has mentioned that the trust was conducting schools at Mira Road and Chembur, that there is no doubt that BKF was deducting tax at source on payment of rent to the Assessee. The AO has mentioned that instead of occupying the building the assessee might have utilised some other premises for running the .....

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BR> Allowance of expenses on account of improvement of leased premises - Held that:- We find that the assessee had installed various items as per the mutual agreement entered into with the lessee, that the amount was capitalised. We have, in the earlier part of the order, held that rental income was to be assessed u/s. 22 of the Act. Therefore, we agree with the observation of the FAA that capitalisation will not make any difference.- Decided against revenue.

Allowance of expenses on .....

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e AO. In our opinion, the addition had to be restricted to the four entities who had taken the accommodation entries. As the AO has not brought on record that purchases made by the assessee were part of bogus bill transactions, so we are of the opinion that FAA was justified in deleting the addition with regard to addition made under the head bogus purchases as well as the proportionate interest disallowance - Decided against revenue.

Addition made on account of accommodation entries .....

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ty in question, that the advances were given out of the funds received by the assessee from one of the group concerns namely Kanakia Spaces Pvt. Ltd., and it did not charge any interest from the assessee. Therefore, in our opinion disallowance was rightly deleted by the FAA - Decided against revenue. - ITA No. 853/Mum/2013 - Dated:- 30-10-2015 - Rajendra, AM And Beena Pillai, JM For the Appellant : Shri Vijay Mehta For the Respondent : Shri Sujit Bangar ORDER Per Rajendra, AM Challenging the ord .....

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ty as against income from other sources as well as allowance of interest expendi-ture of ₹ 3. 26 crores. During the assessment proceedings, the AO found that vide agreement, dated 11. 8. 2006, the assessee had acquired development rights in respect of a plot of land situated at Govandi, Chembur, that an irrevocable general power of attorney was also executed in respect of the said land, that the plot of land was reserved for construction of school and play ground, that approval in respect .....

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th BKFfor giving school building on rental basis, that in July 2007 part possession of the school building i. e. upto second floor was given to the said trust, that at that time it was decided to charge rent of ₹ 2. 00 lacs per month for 9 months, that the assessee had shown rental income, amounting to ₹ 18. 00 lacs under the head income from house property u/s. 22 of the Act, that the assessee had taken secured loans as well as unsecured loans for construction of school building, th .....

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d the same was issued on 22. 11. 2007, that the amended IOD, in the name of trust, was in continuation of original approval of 10. 1. 2007, that the amended Commencement Certificate (CC) dated 28. 12. 2007 was in continuation of the original CC dated 24. 4. 07, that vide its letter dt. 23. 1. 2008 it applied for Occupation Certificate (OC) in respect of the school building, that the assessee received ₹ 4. 13 crores from the trust, that it paid interest of ₹ 1. 49 crores on secured lo .....

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d an explanation in that regard. The AO held that the OC was not granted till 31. 3. 2009, that the building did not exist on that date, that the assessee was granted permission to develop the school premises much later than the rent agreement with BKF was entered into, that the constructed building area mentioned in the agreement was much more than the actual proposed plan, that IOD was issued in the name of the original land holder, that IOD dt. 22. 11. 2007 was not the permission for developm .....

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appropriate authority to operate the school, that no major expenses were capitalized with the building, that labour charges were incurred before 31. 7. 2008, that same were found to be spread over throughout the year. Finally, he held that the income arising to the assessee was to be taxed under the head income from other sources. He also held that the interest amounting to ₹ 3. 26 crores was not allowed. 2. 1. Aggrieved by the assessment order the assessee filed an appeal before the Firs .....

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8377; 10. 53 crores, that the P&L A/c. as on 31. 3. 2008 showed further expenses incurred till 31. 3. 2008, that the file number of approvals such as IOD, CC remained the same throughout, that the contention of the AO with regard to invalidity of IOD and CC was not correct, that the certificate of architecture proved that as on 12. 4. 2004 work up to the 2nd floor of the school was completed in all aspects and RCC work upto 7th Floor was also complete. The FAA perused the number of students .....

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ng school at Chembur, that there was no basis to hold that school might have functioned from other building, that the details about the students, results, correspondence, deduction of tax at source etc. proved that the school had started functioning during the year under consideration, that the income received by the assessee was to be taxed under the head income from house property. He also held that proportionate interest of ₹ 3. 26 crores u/s. 24 of the Act, claimed by the assessee was .....

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es. We find that in this case IOD was issued in relation to the plan that was put up on 25. 8. 2006 i. e. after entering into the development agreement. The fact is confirmed from the IOD dated 10. 1. 2007 and CC dt. 24. 4. 2007. It is found that amended plan was put up on 21. 2. 2007 and was approved on 8. 3. 2007, that construction work started in earlier assessment year and expenses were shown in the books of account from that year, that total expenditure incurred till 31. 3. 2007 was of S .....

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e complete. It is also found that in the case of BKF the AO has mentioned that the trust was conducting schools at Mira Road and Chembur, that there is no doubt that BKF was deducting tax at source on payment of rent to the Assessee. The AO has mentioned that instead of occupying the building the assessee might have utilised some other premises for running the school. We do not find any reason fir arriving at the said inference. The evidences produced before the FAA about admission of students a .....

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1. 92 crores on account of improvement of leased premises. During the assessment proceedings, the AO found that as per the lease agreement the cost of improvement such as furniture and fixture and basic infrastructure to run the school were required to be incurred by the school, that it was the responsibility of the school to purchase and install the same so as to make it operational, that cost of airconditioners, computers, printers, generators etc. were no to be incurred by the assessee, it w .....

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talised in the AY. 09-10, that same had to be reduced from the capital investment, thus, he fixed revised capital investment at ₹ 40. 17 crores. He disallowed proportionate interest of ₹ 19, 72, 594/- also. 3. 1. Before the FAA, the assessee contended that only dispute was regarding the requirement of the assessee to incur the expenditure, that there was delay in completion of the project, that the school was occupied by the lessee party, that it was mutually agreed that the assessee .....

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that the rental income was to be assessed under the head income from house property, that the capitalisation would not make any difference. Finally, he allowed the appeal filed by the assessee. 3. 2. Before us, the DR supported the order of the AO and the AR supported the order of the FAA. We have heard the rival submissions and perused the material before us. We find that the assessee had installed various items as per the mutual agreement entered into with the lessee, that the amount was capi .....

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an action u/s. 132(1) of the Act was carried out in the Kanakia Group of cases on 29. 3. 2011, that enquiries conducted after the search operation revealed that it had taken accommodation bills, that Kanakia group had declared an amount ₹ 42 crores towards bogus purchases for the AYs 2006-07, 2011-12 u/s. 132(4) of the Act, that the said disclosure was made in the hands of four group companies. The AO during the assessment proceedings, recorded statement of Girish Sangani u/s. 131 of the A .....

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the AO had not provided a copy of the statement of Girish Sangani that was relied upon by him to make the addition, that Girish Sanganihad nowhere referred its name when statements were recorded, that no accommodation entries were provided to the assessee, that the statement of Rakesh Kanakia who had made admission u/s. 132(4) also did not refer the name of the assessee, that it had filed entire details of transaction alongwith the bills and supporting evidence to prove that purchase were genui .....

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four entities, that out of such total purchase of goods worth ₹ 6. 38 crores were admitted to be bogus both by the purchaser and the seller, that the rest of the purchases were found to be genuine, that the search party had also not pointed about anything wrong with the purchases made with the assessee, that without some concete evidence the AO was not justified in disallowing the purchase. 4. 2. Before us, the DR and the AR supported the order of AO and the FAA respectively. We find that .....

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who had taken the accommodation entries. As the AO has not brought on record that purchases made by the assessee were part of bogus bill transactions, so we are of the opinion that FAA was justified in deleting the addition with regard to addition made under the head bogus purchases as well as the proportionate interest disallowance. Upholding his order, Ground No. 4 is decided against the AO. 5. Next ground is about deleting the addition made on account of accommodation entries amounting to &# .....

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cretion of the bench and the AR supported the order of the FAA. While deciding ground no. 4, we have held that the AO was not justified in making the addition for alleged accommodation entries in case of the assessee. Following the same we uphold the order of the FAA and dismiss Ground No. 5, filed by the AO. 6. Last ground of appeal is about allowing the proportionate interest expenses of ₹ 80, 69, 115/- related to advances made towards Juhu land. During the assessment proceeding AO found .....

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